In simpler terms, Regenerative finance (ReFi) is a concept that merges financial practices with social responsibility, sustainability, and regeneration. It focuses on promoting and re-imposing sustainability and resilience along with monetary profits. It has gained tremendous popularity in the cryptocurrency ecosystem for the fact that it supports the growth of a “regenerative economy.” Meaning an economic system that emphasizes social well-being, economic prosperity, resource sustainability, restoration, and renewal.
The concept of a regenerative economy is still in its early stages, but there are already a few examples of Web3 (blockchain and DeFi technologies) projects using ReFi principles to create positive change.
ReFi distinguishes itself by investing in projects that create a positive impact in terms of environment, social, and economic prosperity. Refi projects can usually range from community development projects to renewable energy ones.
Projects in Regenerative finance are typically financed through a number of methods which include crowdfunding, impact investing, and venture capital.
Now that we have understood what it is and how it works, let’s look into the benefits of ReFi.
One of the signature marks of ReFi is that it helps to elevate the regeneration of natural and social systems, which is essential for long-term sustainability.
Projects in ReFi give importance to supporting marginalized communities, that can help to create a more equitable society.
Funding innovative projects not supported by traditional financial institutions, is another plus point to ReFi.
And yes, as mentioned before, ReFi projects have a positive impact on the environment, society, and the economy.
As with any system relating to investment in crypto, there are always risks, and ReFi is not any different:
If one is considering investing in a regenerative finance project, it’s better if one first understands “tokenomics,” or else they are at risk of losing a lot.
Since regenerative finance is still new, there is currently no regulatory framework for regenerative finance, which may pose a risk for projects to get off the ground.
Though the concept behind regenerative finance is very innovative, it still doesn’t hide the fact that its projects can be riskier than traditional investments, making it difficult to attract investors.
Ensuring its accessibility and inclusiveness is another challenge that regenerative finance faces. Historically it is known that financial systems have always excluded marginalized communities. Thus, regenerative finance will have to be designed in such a way that it is inclusive and accessible to all.
Financial returns are usually easier to measure compared to social and environmental impact. Thus, measuring the impact of regenerative finance initiatives will turn out to be difficult.
The exploitative nature of the present financial system has been brought to notice by ReFi and has also presented an alternative that can be of benefit to the world.
Though regenerative finance has mainly been associated with carbon projects, it is showing an impact in other areas too:
Ocean Conservation: It seems some projects have been issuing blue carbon credits that help marine protected areas track the health of their ecosystems along with generating revenue in order to fund their conservation projects.
Regenerative Community Development: It is common knowledge that the health of an ecosystem is often dependent on those that inhabit it. Therefore, there are projects that have emerged to create common credits which would have an impact in taking over private land and returning it to local communities.
Reforestation and Conservation: For a long time, the funding of carbon reduction projects has been tried to be indirectly incentivized by the Voluntary Carbon Market. To aid this, ReFi is currently taking this a step further by leveraging the power of web3 technologies to fund reforestation, regeneration and conservation more directly.
Preservation of Soil and Water Quality: Some specific ReFi projects have been aiming to solve the issues surrounding soil depletion and drying up of freshwater in the world by using web3 to raise funds for research, development, and application of sustainable and restorative water practices.
Though a comparatively new concept in comparison to cryptocurrency, Web3, and blockchain as a whole, regenerative finance has still shown significant potential to improve sustainability and environmental initiatives around the world. Also along with this, some specific ReFi initiatives are working in order to ‘bank the unbanked’, which means offering financial independence that has traditionally not been accessible to many.
Though regenerative finance has mainly been associated with carbon projects, it is showing an impact in several other areas such as ocean conservation, community development, reforestation and conservation, and many more.
